Lincoln restaurant closures prompt debate about saturation

by Joseph McCarty ·
Published December 15, 2016
· Updated December 16, 2016

Dempsey’s Burger Pub in downtown Lincoln permanently closed Nov. 9, much to the surprise of the owner, Steve Gaudreau. He said the manager closed the restaurant without his permission. But Gaudreau said doing business in Lincoln was tough to begin with because the restaurant market in the Haymarket is saturated.

When Dempsey’s Burger Pub in downtown Lincoln shut down last month, many were shocked — even the owner.

Steve Gaudreau, who still owns three Dempsey’s pubs, said he was “totally blindsided” when the manager closed the restaurant without his permission.

“I had no intention of ever closing the store,” Gaudreau said.

But the pub was never profitable, and this fall, costs were getting out of control, thanks to bad management, Gaudreau said.

To top it all off, the restaurant market in Lincoln is saturated, according to Gaudreau, which makes it hard to compete even under good circumstances.

Dempsey’s is just one of the latest popular Lincoln restaurants to close this year, after Grandmother’s in February and Doozy’s Sandwich Shop in March. Most recently, Piedmont Bistro closed Dec. 6.

And some point to those closings as signs that the city, or at least parts of it, has more restaurants than consumers can possibly support. So some restaurants will be unable to make a profit and have to shut down.

Forty-nine Lincoln restaurants have gone out of business so far this year, while 43 went out of business last year, according to data obtained from the Lincoln-Lancaster County Health Department.

This year’s increase in closures — six— is relatively small, but five of those six occurred in the Haymarket. Only one restaurant went out of business there in 2015, while five have shut their doors so far in 2016.

The Haymarket statistics jibe with what Jim Partington, executive director of the Nebraska Restaurant Association, thinks about Lincoln’s current restaurant situation. He agrees Lincoln’s market is saturated, but only in certain parts of city, especially the Haymarket. The opening of the Pinnacle Bank Arena there in 2013 meant many people needed a place to eat before or after games or concerts.

“So, the industry responded and came in and kind of aggressively opened up businesses there,” he said.

But the Haymarket hasn’t reached its full market potential yet, according to Partington, which is why some businesses are struggling.

Gaudreau, who owned Bison Witches in downtown Lincoln for about 15 years until he sold it last year, also pointed to the revitalization of the Haymarket as the reason for the market saturation.

He said that when the city started luring new businesses into the district, especially into the Railyard, the western part of the district, it “crushed” other downtown businesses.

The city gave preferential treatment to the new restaurants in the Railyard, Gaudreau said, by making it an entertainment district, where people can walk between restaurants and stores with an open container of alcohol.

“That really hurt a lot of us, I think,” he said.

But some experts don’t think the market has saturated.

Derek Feyerherm, director of sales and operations at the Convention and Visitors Bureau at the Lincoln Chamber of Commerce, said if the market was saturated, there would be fewer restaurants opening and more closing.

“We haven’t really seen a complete over-saturation yet,” he said.

To be sure, 66 restaurants went out of business in Lincoln in 2014, according to the data from the health department. So citywide, the number of restaurant closings has actually declined over the last two years.

But even in 2014, only two restaurants went out of business in the Haymarket, compared with the five so far this year. That once again indicates that if there is saturation, the Haymarket is the source.

Partington stressed that the saturation is a temporary market fluctuation that will eventually correct itself.

“The restaurant industry runs in cycles like this,” he said.

National franchises research the market potential of different cities and open businesses where they see the most potential, according to Partington.

“But the business doesn’t rise quite as fast as the potential was going to be down the road, so they have to be able to hang in there for a little while until the business catches up,” he said.

Partington expects the saturation in the Haymarket to continue for about three to five years, but he said it’s tough to say for sure.

“I think the potential there is excellent over time,” he said. “It’s a matter of finding the right venue and the right mix to get established in there and be able to stay in there for the length of time it takes to build business.”